Does Bankruptcy mean losing everything?

The most common concern for debtors contemplating a Bankruptcy is what they’ll have to give up to achieve a financial fresh start. As a Licensed Insolvency Trustee this is the number one question I am asked when first meeting with someone looking for options to deal with their financial struggles — and the main reason many wait so long to seek professional guidance. Many people have a misplaced fear of losing everything which causes them to delay seeking professional help and ultimately moving forward with their life.

man and woman looking at laptop

Does Bankruptcy mean you’ll have to give up everything? Fortunately, the simple answer is ‘no’, however it is a bit more complicated then that. The intent of a Bankruptcy is to help you get a fresh start when no other options are available.

It is likely you’d have to surrender some assets to the Licensed Insolvency Trustee for liquidation. However, many possessions — especially the ones you need to live, work, and rebuild your life after debt — will be protected by provincial legislation.

Everyone deserves a fresh start

Bankruptcy provides honest, but unfortunate debtors an opportunity to recover from unmanageable debt when no other options are available. It is a legally binding process which ensures a fair and predictable outcome for consumers and creditors alike.

Why are assets liquidated?

Bankruptcy legislation must balance an individual’s need for a fresh start and their creditors’ right to recover a portion of the debts they’re owed. Asset liquidation and surplus income payments (if applicable) provide financial consideration to creditors who stand to lose money when a client’s debts are forgiven through the Bankruptcy process.

What are asset exemptions?

Of course, this financial consideration cannot come at the expense of an individual’s ability to work, live, or maintain a reasonable standard of living during or after their Bankruptcy. The corresponding asset exemptions discussed below protect the debtor and ensure they’re financially able to recover from their debts and make the most of their fresh start.

How do asset exemptions work?

If the bankrupt individual owns assets within the prescribed asset exemptions (e.g. car is worth $2,500 and the exemption is $3,000) they may keep the asset. If the asset is worth more than the prescribed exemption (e.g. the car is worth $6,000 and the exemption is $3,000) they must either surrender the asset and receive the amount of the exemption when it is liquidated or pay the remaining equity amount (e.g. $3,000) to retain the asset.

Asset exemptions in Manitoba

The Executions Act of Manitoba declares the following assets exempt from seizure in a Bankruptcy. These items would not vest in the Trustee for the benefit of your unsecured creditors.

  • Furniture, household furnishings and appliances not exceeding total value of $4,500
  • One motor vehicle, if necessary for work or transportation to and from work, not exceeding $3,000 in value
  • Actual residence of the bankrupt, equity of $1,500 each if in joint tenancy, or $2,500 if not in joint tenancy
  • Tools, implements, professional books, and other necessaries not exceeding a total value of $7,500 used in practice of trade, occupation or profession
  • Necessary and ordinary clothing of the debtor and family
  • Health aids, including wheelchair, air conditioner, elevator, hearing aid, eyeglasses, prosthetic or orthopedic equipment, necessary to debtor or family
  • RRSPs, Registered Retirement Income Funds (RRIFs) and Deferred Profit-Sharing Plans (DPSPs)
  • Certain life insurance policies
  • Food and fuel necessary to a family for a period of six months, or the cash equivalent

For Farmers:

  • Animals necessary for farming operation for the ensuing 12 months
  • Farm machinery, dairy utensils, and farm equipment necessary for the ensuing 12 months
  • One motor vehicle if required for purposes of agricultural operations
  • Home quarter
  • Seed sufficient to seed all land of the debtor under cultivation

Every situation is different

The thought of giving up your house, your car, or a cherished heirloom can certainly feel overwhelming — but so is the thought of persisting in the cycle of unmanageable debt.

Bankruptcy is only one option of several potential options to resolve your financial challenges. A Licensed Insolvency Trustee can help you understand how it compares to others you may qualify for and whether it’s the right solution for your current situation.

Schedule your no-obligation Free Confidential Consultation with MNP today. Together, we’ll ensure you’re fully informed and prepared to make the best decision to support your financial success today and in the years to come.